Tesoro stock tumbles after profit falls short

Margins at its Hawaii refinery improve while output slips by 3.5%

Staff and wire reports

SAN ANTONIO, Texas » Shares of Tesoro Corp., owner of six U.S. refineries including Hawaii's largest, had their biggest drop since 2005 after the company reported a smaller increase in first-quarter profit than analysts expected.

The shares slid $8.88, or 7.2 percent, to close at $114.95 yesterday on the New York Stock Exchange. Before yesterday, Tesoro shares had jumped 88 percent this year, fourth-most among all stocks on the New York Stock Exchange.

Profit more than doubled to $116 million, or $1.67 a share, from $43 million, or 61 cents, a year earlier, San Antonio-based Tesoro said yesterday. Per-share net income was 20 cents below the average of eight analyst estimates compiled by Bloomberg News, partly because the idling of plants, including the Golden Eagle refinery in California, left Tesoro unable to take full advantage of rising gasoline and diesel prices.

"Golden Eagle being down so long made it really hard for them to have a great quarter," said Roger Read, an analyst at Natexis Bleichroeder Inc. in Houston.

In Hawaii, the company's refining margin for the quarter improved to $4.02 a barrel, up 24.4 percent from $3.23 during the same period last year, but far below the double-digit margins for the latest quarter in the company's other regions. Total Hawaii throughput was 83,000 barrels a day, down 3.5 percent from 86,000 in the year-ago quarter and also below the 85,000-to-90,000 range the company had forecast in January.

The average gap between crude-oil costs and refined fuel prices jumped 59 percent from a year earlier on the U.S. West Coast, where most of Tesoro's plants are located. Demand gains and supply disruptions lifted U.S. fuel prices at the pump.

Tesoro is adding a second refinery in California with its May 10 purchase of a plant near Los Angeles.

Chief Executive Officer Bruce Smith told investors today on a conference call that may make an acquisition in Asia after maximizing its share of domestic fuel-making capacity in the lucrative California gasoline market.

He had previously said antitrust regulators wouldn't allow Tesoro to make any more deals in California after the $1.9 billion Los Angeles plant.

"Asia Pacific for us would make a lot of sense," Smith said, but did not elaborate.

Adding a refinery in Asia would allow San Antonio-based Tesoro to ship gasoline to California and take greater advantage of some of the industry's widest profit margins, an analyst said.

"There are plenty of refineries in the Asia-Pacific region and more in the works," said Charles Ting, an analyst at Lehman Brothers in New York.

One possibility would be to form a joint venture with a company in Asia, rather than buying a plant outright, Ting said.